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Dear Clients,

2007 had provided very little in terms of surprises up until Tuesday – when the Dow dropped 416 points which was the biggest percentage drop in the index in nearly 4 years. Here is how our portfolios have stacked up against the averages YTD:

Core Portfolio………………….……….……..3.0%
Focus Portfolio……………………….…..……2.7%

S&P (VFINX)………………………………….….0.2%
NASDAQ (QQQQ)…………………………..…0.5%
Benchmark (Couch Potato Portfolio)…….1.2%

So far, so good. I’ve been able to eak out some decent profits solely by utilizing alternative strategies. As you know, I have no equity exposure in your accounts as I’m fearful that we are on the brink of a significant bear market that could devastate equity portfolios. It will be a few more weeks before I can definitely say that Tuesday was the beginning of the bear market that I’ve been anticipating. If it is, we can expect a few more days like it.

As a prudent investment advisor, I like to play it safe which means always looking for what could go wrong with my portfolio. In that vain, I’ve noticed a specific vulnerability in your account. Despite having no current equity exposure (Actually, I’ve maintained a mild short-equity bias), I am growing increasingly fearful that my strategy may not be able to protect you from short-term losses in the event of an equity bear market. Please allow me to try and explain. Read the rest of this entry »